Single-family homes are flying off the shelves. Commercial real estate is going through tough times.
But whatever you say about the real estate market, you can bet that this situation won’t last long. Those familiar with the market say residential real estate is already starting to cool off after the boom that began late last year. And yet, at the same time, commercial real estate (including offices, warehouses and business facilities) appears at the end of the Covid-19 tunnel.
Nothing is static in this business. Different types of investments face different challenges.
“In the past year, concerns have been raised about how commercial real estate will weather the pandemic,” says Raj Dhanda, CEO of Black Creek Group, a real estate investment management firm based in Denver. “Despite these concerns, we believe that fundamentals are good, especially in the industrial and multi-family sectors. Commercial real estate is emerging from the pandemic strong and stable, and we are seeing a growing interest in private real estate. “
“Leadership in the real estate sector may decline and decline as market forces affect residential and commercial real estate in different ways,” wrote Cynthia Murphy in a report for ETF.com, a research and analysis firm for the exchange-traded fund market. “If 2020 was a successful year for residential construction, then 2021 will be a great year for commercial real estate.
“Housing ETFs have surged to record highs in the last 12 months or so as inventories have shrunk due to ever-growing appetite for home buyers and mortgage rates to multi-year lows,” Murphy said. However, “we know that market narratives certainly change overnight.”
Others, tracking discrepancies in various sectors of the real estate market, agree.
“Today is the question of sustainable recovery [from the 2020 economic shutdown] the question is no longer if, but when, ”says Calvin Schnure, senior economist and senior vice president of research and economic analysis at the National Association of Real Estate Investment Trusts Nareit. “Strong growth for the remainder of this year and next year will spur demand for all types of commercial property and help spur a stronger REIT recovery.”
Shnure adds that there is a new “unevenness” in the real estate market, in part due to the inability to restart the economy right away.
Drew Reynolds, chief investment officer of Realized Holdings in Austin, Texas, noted that residential real estate “skyrocketed” at the end of the pandemic. “Housing prices have risen quite sharply. Prices are not going to go down, although they are stabilizing. ” Realized Holdings is a real estate investor support organization, especially for 1031 exchanges. (Section 1031 of the Internal Revenue Code allows real estate sellers to avoid capital gains tax on profits from the sale if they choose another similar property to buy within 45 days and make a purchase within 180 days.)
Sales of existing homes are boosted by persistently low interest rates and the fact that enough new homes are almost never built to meet demand. According to David Kopp, portfolio manager at TIAA-CREF Real Estate Securities Fund, between 1.6 million and 1.7 million new homes are being built annually, although roughly 2.1 million are needed. 6.5 million homes were sold in the United States last year, and that number is projected to rise to 7.1 million this year, according to Statista, a real estate research and statistics firm.
The multi-family market is in high demand
Multi-family properties are also in high demand. “We are still seeing steady growth in rents,” says Dhanda, “especially in the suburban markets as it becomes easier for people to move as the location of their main office can no longer determine their life situation.”
Reynolds adds: “For those investors who own a portfolio of single family homes, even if it’s only five or ten properties, they may want to consider looking for buyers outside of their local market. Depending on the market in which the property is located, institutional buyers are incredibly active in this space right now and can provide a more efficient sale and possibly a better price. ”
Despite the fact that there has already been some decline in the past few months, the demand for residential real estate has continued to grow markedly since the beginning of the pandemic. Sales of single-family homes, townhouses, condominiums and cooperatives fell 2.7% from March to April this year, but rose nearly 40% in April from April 2020, according to the National Association of Realtors.